Monthly Consumer Price Index Indicator methodology

The monthly Consumer Price Index (CPI) indicator was developed to provide inflation data at a higher frequency for use by governments, economists and the wider community. The quarterly CPI remains the principal measure of household inflation.

The monthly CPI indicator is derived using available data from the quarterly CPI. The data and methods used in the monthly CPI indicator are consistent with what is used in the quarterly CPI Consumer Price Index, Australia.

Details on the development of the monthly CPI indicator can be found in the following information paper: Introducing a monthly CPI indicator for Australia

A list of frequently asked questions is available here: Monthly CPI indicator FAQs

The CPI is a general measure of prices for goods and services purchased by Australian households. Changes in the CPI provide a measure of household inflation. 

The CPI measures the change in the cost of a 'basket' of goods and services which account for a high proportion of expenditure by the CPI population group (that is, metropolitan households). This basket covers a wide range of goods and services, arranged in the following eleven groups:

• Food and non-alcoholic beverages
• Alcohol and tobacco
• Clothing and footwear
• Housing
• Furnishings, household equipment and services
• Health
• Transport
• Communication
• Recreation and culture
• Education
• Insurance and financial services

The monthly CPI indicator has been developed using existing data sources used to produce the quarterly CPI to provide a monthly CPI indicator of inflation.

The ABS collects a large volume of data on the prices faced by consumers. These prices are collected at a range of frequencies including weekly, monthly, quarterly and annually.

Conceptually, the monthly CPI indicator will include all the items of the quarterly CPI basket, however, not all items in the basket will be updated with new prices each month. As a result, the monthly CPI indicator has some deficiencies relative to the quarterly CPI. In particular, the frequency of price collection and the methods used to compile the two indexes will lead to differences between the monthly CPI indicator and the quarterly CPI.

Monthly price data is available for 43% of the CPI basket. When combined with quarterly and annual price collections, the new monthly CPI indicator represents up-to-date prices for between 62 and 73 per cent of the weight of the CPI basket, depending on the month in the quarterly cycle (see section on Imputation).

The monthly CPI indicator data is published at the national level, derived as a weighted average of the eight capital cities.

Further information about the CPI is contained in Consumer Price Index: Concepts, Sources and Methods.

The same price data is used in the monthly CPI indicator as the quarterly CPI Consumer Price Index, Australia.

The frequency of price collection by item varies as necessary to obtain reliable price measures. Prices of some items are volatile (i.e. their prices may change multiple times each month) and for these items, frequent price observations are necessary to obtain a reliable measure of the average price change. Each month, prices are collected at regular intervals for items such as alcohol, clothing, dwelling construction, rents, petrol and holiday travel and accommodation. There are a few items where prices typically change at infrequent intervals, for example education fees where prices are set once a year at the start of the school year. In these cases, the frequency of price collection is modified accordingly. 

For some items in the CPI basket, prices are collected once every third month. This is a design feature of the quarterly CPI where price change is measured on a quarterly basis for around half the weight of the CPI basket. To facilitate an even spread of price collection workload, the number of items for which prices are collected is distributed roughly equally across each month of the quarter. In all cases, individual items are priced in the same month of each quarter. For example, items for which prices are collected in the first month of the September quarter, July, are also priced in the first month of subsequent quarters, namely October, January and April (see link for list of when items are collected Monthly CPI goods and services coverage).

The Australian Bureau of Statistics (ABS) uses a variety of sources to collect CPI prices, such as online and telephone collection and administrative data, including scanner data. For some items the ABS uses automated website data collection, referred to as 'web scraping'. Further information is discussed in Web Scraping in the CPI. In the case of transactions ‘scanner’ data, revenue and quantity data are collected on a weekly basis. For further details on the ABS’s use of scanner data see An Implementation Plan to Maximise the Use of Transactions Data in the CPI.

The monthly CPI indicator combines the monthly collected data and data collected once every three months (quarterly). This approach enables the production of a monthly All groups CPI series, rather than an alternative approach of a partial monthly CPI series based only on the items where monthly data is available.

For those items measured quarterly, imputation is used in the months the quarterly data is not collected. The method used is known as ‘carry forward’ imputation, which imputes a zero movement in the months where price data is not available. This assumes no price change in the months where prices are not collected for the relevant items. These items are then combined with the items where updated prices are available and aggregated to produce a monthly CPI indicator which represents the whole CPI basket.

The following table shows the frequency with which data is collected by the proportion of the quarterly CPI basket that these represent. Including the data collected once per year:

• January, April, July and October months will include up-to-date price information for 62 per cent of the weight of the quarterly CPI.
• February, May, August and November months will include up-to-date price information for 73 per cent of the weight of the quarterly CPI.
• March, June, September and December months will include up-to-date price information for 71 per cent of the weight of the quarterly CPI.

Further details on imputation can be found Imputation approach used in months where price data are not collected.

While the quarterly CPI is not revised, the monthly CPI indicator may be revised, particularly while it is being further developed. Some examples of where revisions may occur include:

• More complete data becoming available closer to the release of the quarterly CPI. This will result in revisions to the previous 1-2 months of the monthly CPI indicator.
• Converting a series from being measured once per quarter to being measured on a monthly basis. Revisions to the previous 12 months will be implemented to preserve the annual movement in the current and subsequent months.

The attached link outlines a range of issues that users should consider in relation to using price indexes in contracts - Inflation and Price Indexes - Use of Price Indexes in Contracts.

As is the case with all price indexes, the index reference period (the period in which the index is set equal to 100.0) will be changed periodically. The index number levels for all periods will be changed by this process and it may also result in differences, due to rounding, between the percentage changes published on the old base and those on the new base. Seasonally adjusted indexes (including the Trimmed mean and Weighted median) for some months will be revised as extra months are included in the series analysed for seasonal influences.

Weighting pattern used for the monthly CPI indicator are based on those used for the quarterly Consumer Price Index, Australia.

There are 87 expenditure classes (that is, groupings of like items) in the 17th series CPI and each expenditure class has its own weight, or measure of relative importance. In calculating the index, price changes for the various expenditure classes are combined using these weights.

Changes in the weighting pattern have formerly been made at approximately six yearly intervals to take account of changes in household spending patterns. From the introduction of the 17th series CPI in December quarter 2017, the weights are now updated annually. The Household Expenditure Survey (HES) is used to re-weight the CPI in the years where it is available, currently six-yearly. In inter-HES years, Household Final Consumption Expenditure (HFCE) data from the National Accounts is used as the primary data source for updating the weights.

The current weighting patterns for the CPI are published in Annual weight update of the CPI and Living Cost Indexes. The historical weighting patterns for the CPI are published in Consumer Price Index: Historical Weighting Patterns, 1948 - 2017.

Published index numbers are rounded to one decimal place. Percentage change movements are calculated from the rounded index numbers and then rounded to one decimal place.

Movements in indexes from one period to another can be expressed either as changes in index points or as percentage changes. The following example illustrates the method of calculating changes in index points and percentage changes between any two periods: 

All groups CPI: Weighted average of eight capital cities. Index numbers:

Month on month movement:

July 2022 index = 114.2
Less June 2022 index = 113.5
Change in index points = 0.7
Percentage change = 0.7/113.5 x 100 = 0.6%

Annual (12 month) movement:

July 2022 index = 114.2
Less July 2021 index = 106.7
Change in index points = 7.5
Percentage change = 7.5/106.7 x 100 = 7.0%

Analytical series are presented to assist users to analyse the monthly CPI indicator. Analytical series include:

• Seasonally adjusted All groups CPI
• CPI excluding ‘volatile items’: volatile items are Fruit and vegetable and Automotive fuel
• Trimmed mean 

Underlying inflation measures

Underlying trend series, 'Trimmed mean' and 'Weighted median': These are two analytical measures of trend inflation using standard ABS seasonal adjustment techniques. For more information see the Information Paper: Seasonal Adjustment of Consumer Price Indexes. The Trimmed mean and Weighted median are calculated using the distribution of expenditure classes each month derived as follows:

• The CPI expenditure classes are ranked from lowest to highest according to the seasonally adjusted percentage change from the previous month.
• The seasonally adjusted relative weight of each expenditure class is calculated based on its previous month contribution to the All groups monthly CPI indicator.
• The 'Trimmed mean' is calculated by using a weighted average of percentage change from the previous month (seasonally adjusted) from the middle 70 per cent of the distribution.
• The 'Weighted median' is calculated using the percentage change from the previous month (seasonally adjusted) expenditure class at the 50th percentile of the distribution. Currently available for the monthly CPI indicator.

Further details can be found here: Underlying Inflation Measures: Explaining the Trimmed Mean and Weighted Median.

The Monthly CPI Indicator will be seasonally adjusted using the same methods as the quarterly CPI.

Seasonally adjusted estimates are derived by estimating and removing systematic calendar related effects from the original series. In most economic data these calendar related effects are a combination of the classical seasonal influences (for example, the effect of the weather, social traditions or administrative practices such as government charges increasing on 1 July each year) plus other kinds of calendar related variations, such as Easter or the proximity of significant days in the year (for example, Christmas). In the seasonal adjustment process, both seasonal and other calendar related factors evolve over time to reflect changes in activity patterns. The seasonally adjusted estimates reflect the sampling and non-sampling errors to which the original estimates are subject.

The CPI uses a concurrent seasonal adjustment methodology to derive the adjustment factors. This method uses the original time series available at each reference period to estimate seasonal factors for the current and previous months. Concurrent seasonal adjustment is technically superior to the more traditional method of reanalysing seasonal patterns once each year because it uses all available data to fine tune the estimates of the seasonal component each month. With concurrent analysis, the seasonally adjusted series are subject to revision each month as the estimates of the seasonal factors are improved. In most instances, the only significant revisions will be to the combined adjustment factors for the previous month and for the same month in the preceding year as the reference month (for example, if the latest month is June 2022, then the most significant revisions will be to May 2022 and June 2021). The seasonal patterns are also reanalysed on an annual basis or when there are known changes to regular events. This can lead to additional revisions.

The ABS applies seasonal adjustment to the expenditure class components of the CPI which are found to be seasonal, and then aggregates the seasonally adjusted and non-seasonally adjusted components to calculate the All groups CPI, seasonally adjusted, Trimmed mean and Weighted median estimates. For more information about seasonal adjustment of the CPI please refer to Information Paper: Seasonal Adjustment of Consumer Price Indexes.